Thursday, 30 June 2016
Last updated 6 hours ago
Oct 26 2010 | 3:30am ET
Federal and state regulators came down hard on a Connecticut hedge fund yesterday, accusing it of overvaluing its portfolio to overcharge investors by tens of millions of dollars.
Southridge Capital Management and CEO Stephen Hicks cooked up a bogus value for their funds' largest holding, Fonix Corp., based almost entirely on the speech recognition company's 2004 acquisition of two companies controlled by Hicks, the Securities and Exchange Commission and Connecticut Banking Commissioner Howard Pitkin alleged.
Southridge and Hicks also lied to investors about the firm's strategy, according to the suit, allegedly claiming to have more than three-quarters of the $78.9 million they raised from 2004 through 2007 in liquid assets or cash. But when most of the hedge funds' investors filed redemption requests, they allegedly found them ignored.
Some of the unfilled redemptions date back to 2001, according to Connecticut, which is seeking a 10-year ban against Hicks. The firm managed as much as $125 million between 2004 and 2007, but as of early last year had only $70 million.
All told, according to the Connecticut lawsuit, Hicks and Southridge collected $26 million in fraudulent fees over the 2004 to 2007 period.
"This investment firm told lucrative lies," Connecticut Attorney General Richard Blumenthal said. "This kind of financial fraud harms investors, but also the entire economy."